January Sees a 0.1% Rise in Consumer Prices on Higher Rent and Heating

in the more widely watched report on the Consumer Price Index for for All Urban Consumers (CPI-U) for January, the BLS reported that average prices for goods and services rose at a seasonally adjusted 0.1% rate for the month, largely due to higher prices for rent equivalent housing, home heating and medicine, while prices for a host of other goods declined in price...core prices, which are for all items except food and energy, also rose by 0.1% as food price increases were modest and lower gasoline prices offset other energy price increases...over the 12 months ending January, overall prices rose by 1.58%, which is conventionally rounded to a 1.6% annual rate, and core prices rose by 1.62%, which is also rounded to 1.6%...the unadjusted all-items consumer price index, which is based on 1982-84 prices equal to 100, was at 233.916, up nearly 0.4% from the 233.049 reading in December; and up 1.56% from the index level of 230.280 last January...the core index reading was at 235.367 in January, up about 0.15% from December and 1.60% from the 231.612 index level of a year earlier...

the seasonally adjusted energy index was up 0.6% in January as the cost of energy services rose 2.2% and prices for energy commodities fell 0.5%...most of the energy price increases related to heating; the electricity index rose by 1.8% in January, its largest increase since March 2010, while the index for natural gas rose 3.6%; as it was January, the unadjusted indices for both were up even more; 2.4% for electricity and 4.0% for gas, while unadjusted prices for fuel oil were up 3.7%, and unadjusted prices for other fuels (propane, kerosene, and firewood) rose 9.4% over December's prices...meanwhile, the price index for all types of gasoline fell 1.0%, dragging the overall increase for energy down to 0.6%...for the 12 months ending with this report, energy commodities were up just 0.5% as gasoline prices were down 0.1%, while energy services saw a 4.5% price increase as both natural gas and electricity prices are now both more than 4.4% higher than a year ago...

the food price index rose 0.1% in January and was 1.1% higher than a year earlier, as both the food at home index and the food away from home index rose by 0.1%...full service restaurants saw prices rise 0.2%, while prices at fast food restaurants were unchanged...of the major food at home groupings, prices for cereal & bakery products were 0.5% higher, with prices for breakfast cereal, rice, cornmeal and pasta all up 0.7% while overall bread prices were unchanged...prices for dairy and related products also rose by 0.5% as milk prices were up 0.9% and cheese prices fell 1.3%...the price index for meats, poultry, fish, and eggs rose 0.4% as fresh fish and seafood rose 2.8%, pork prices were up 0.3% on 1.9% higher prices for breakfast sausage, beef prices fell 0.1% and volatile eggs prices fell back 1.6%.....meanwhile, the price index for fruits and vegetables was 0.3% lower as lettuce prices fell 4.1%, apples fell 1.9%, oranges rose 4.0% while processed fruits and vegetable prices were generally unchanged...prices for non-alcoholic beverages and beverage materials were also down, by 0.2%, as carbonated drink prices rose 0.3% and coffee prices fell 1.0%...,in addition, the prices for the broad group of other foods at home were unchanged as sugars and artificial sweeteners rose 1.2%, soups rose 1.1%, salad dressings fell 1.6% and frozen or freeze dried foods fell 1.8%...

core price changes continued in the pattern we've observed in recent months, with prices for goods generally down a bit and most prices for services up a bit ....the index for shelter, which is over 32% of the CPI, rose 0.3%, with rent of shelter rising 0.2%, as both rent and owner's equivalent rent were up 0.2%, while prices for lodging away from home rose 1.3%...prices for apparel, meanwhile, fell 0.3% and are now 0.3% lower than they were a year ago, as prices for men's clothing fell 1.7%, prices for women's clothing rose 0.9%, while footware prices fell 0.9%...the index for medical care was rose 0.3% in January after two months without change as prices for medical care commodities rose 0.5% on drug prices that were 0.9% higher while prices for medical care services rose 0.2% as inpatient hospital services charges rose 1.4% while doctor's fees fell 0.2%...prices for transportation commodities not including fuel were 0.4% lower as prices of new cars and new trucks were 0.3% lower and used car and truck prices fell 0.5%, while prices for transportation services were up 0.1% on 0.5% higher car insurance, 0.2% higher prices for vehicle maintenance and repair, and 0.4% higher motor vehicle fees, which was partially offset by public transportation fares that were 1.4% lower, with airline fares falling 2.2%...in addition, the recreation price index was up 0.2% as recreation commodities fell 0.2% on TV prices that were 0.3% lower, 0.6% lower prices for sports equipment and a 1.2% drop in toy prices, while recreation services rose 0.4% as rental of video and audio discs media rose 1.0%, pet services rose 0.4% and club dues and fees rose 1.1%, and finally the education and communication index was unchanged as education and communication commodities fell 1.1% on prices for college textbooks and personal computers that were both 1.4% lower while prices for telephone hardware rose 0.9%, while education and communication services were 0.1% higher on 0.4% higher telephone services, and 0.2% higher tuition, while prices for postage and delivery services fell 1.0%...of approximately 300 line items in this report, only 4 saw year over year price changes greater than 10%; televisions, which were 13.5% cheaper, lettuce prices, which fell 11.7%, film and photographic supplies, which rose 12.7%, and other fuels including propane, kerosene, and firewood, where average prices were 24.1% higher than a year ago...

our first FRED graph below shows the track of the major aggregate price indexes going back to 1997, when two of these composite indexes were first set; except for those noted, the indexes shown represent the aggregate prices changes based on prices from 1982 to 1984 = 100.…the track of price index for food and beverages, which is 13.9% of the CPI, is shown in blue, while the track of the composite price index for housing, which includes rent or equivalent, maintenance, and utilities and accounts for 41.45% of the CPI, is in red...the apparel index in violet at just 3.44% of the CPI had been falling since the 1990s until 2011, when it rose on much higher cotton prices...the rising orange line is the medical care composite index, which accounts for 7.55% of the CPI; it’s now at 429.621, an increase of more than fourfold from the index years; next, in light green, we have the volatile transportation index, which at 16.4% of the CPI reflects the volatile cost of gasoline and fuel related costs of transportation services, moderated by the slow change in the cost of vehicles and parts; lastly, we have our two indexes benchmarked to 1997 prices equal to 100: education and communication price changes are shown in dark green and account for 7.09% of the aggregate CPI, while the recreation index, at 5.8% of the CPI, is shown in bright blue…

Household Debt Rises in 2013 for the First Time Since 2008

there were also two quarterly reports released this week; the first one we'll look at is the New York Fed’s 4th Quarter Household Debt and Credit Report (pdf), which indicated that total householddebt, including real estate debt, rose by $241 billion in the 4th quarter to $11.52 trillion, a 2.1% increase over the 3rd quarter level....as a result, total household debt for 2013 increased by $180 billion, the first annual increase since 2008...mortgages, the largest component of the aggregate, increased by $152 billion to $805 trillion, a 1.9% increase; home equity lines of credit fell by $6 billion to $529 billion, a 1.1% drop, and non-housing debt rose by 3.3%, with increases of $18 billion in auto loans, $53 billion in student loans, and $11 billion in credit card debt outstanding...

the delinquency rates for most loan types improved over the 3rd quarter, with $820 billion, or 7.1% of total debt outstanding in some stage of delinquency as of December 31, down from a delinquency rate of 7.4% at the end of the third quarter; of that, $580 billion was seriously delinquent, ie, more than 90 days past due, or “severely derogatory”, which is either in foreclosure or referred to a 3rd party for collection....the serious delinquency rate rose to 11.5% on student loans, was up slightly to 9.5% on credit cards, was unchanged at 3.4% of auto loans, fell to from 4.3% to 3.9% for home loans, and fell from 3.5% to 3.2% for home equity lines of credit....157,000 individuals were noted with a foreclosure notation added to their credit report in the 4th quarter, which is about half the number of new foreclosure starts reported by the lenders and mortgage servicers over the same period....

much like some of the other reports we've reviewed, this 31 page pdf report from the NY Fed is almost entirely graphs; it only has one page of text covering the data and a glossary of terms used at the end of the report, so we'll include pictures of a few of the graphs and discuss what they show us....the first bar graph below shows the components of total household debt for each quarter since the beginning of 2003, with each bar on the graph representing a quarter of a year, and within each bar is a color coded representation of the amount in dollars of each type of debt that was outstanding at the end of that given quarter…in each bar, orange represents the amount of mortgage debt that was outstanding at the end of that quarter, while violet indicates the home equity loans outstanding, green are the amount of auto loans, blue is unpaid credit card debt, red are student loans outstanding, and grey is ‘other’ debt outstanding in the quarter...although mortgage debt has been trending down until recently, we should note that this report and its graphics does not distinguish between mortgage debt that has been paid off and mortgage debt that has been extinguished through a foreclosure or a short sale, and there is no good source for that data...we can also see below the jump in debt over the 3rd and 4th quarters of 2013 in the bars on the left, driven, as we mentioned, by increases in all types of debt except revolving home equity loans...

the next bar graph following uses the same color coding for the type of loans represented as the graph above and covers the same time period; in this one, each bar has a color coded representation of the amount of newly delinquent loans by type as they first became delinquent in each quarter; here we can see a pretty clear peak with over $400 billion of newly delinquent debt in the last quarter of 2008; we can also see that newly delinquent student debt, or the red in each bar, has become larger as time goes on, and also clearly see a noticeable increase in newly delinquent debt over the past two quarters, which is still lower than the 3rd and 4th quarter of last year…

the next graph below shows the percentage of each type of loan that was 90 days or more delinquent over the same time period covered by the bar graphs above; we can see how seriously delinquent mortgage debt shown in yellow peaked in 2009, with even worse seriously delinquent rates for credit card debt in blue extending into 2011…and while the percentage of seriously delinquent debt for those categories and auto loans in green has been trending down since 2011, the percentage of seriously delinquent student loans shown in red continued to rise, and is now at 11.5% of all student debt outstanding…

all graphs after page 19 in the report are state level debt and credit graphs showing relevant statistics for the ten largest states by population, plus Arizona and Nevada, apparently because those two states were at the center of the mortgage crisis...the state graph we're including below shows the historical track of the average amount of debt outstanding for each person with a credit report in each of these 12 states over the period from 2003 to the present, with the dashed line showing the national average…the mortgage debt related peak is obvious, as is the fact that California, with its higher priced real estate, has the highest debt per capita…in the 3rd quarter there was a change in credit reporting standards that increased the headcount and hence reduced the per capita debt outstanding for each state, nonetheless, per capita debt still increased over the 4th quarter in all 12 states covered here...

in addition to the Fed credit report, the Mortgage Bankers Association’s (MBA) released their National Delinquency Survey for the 4th quarter of 2013 and, as the headline on the press release tells us, both the mortgage delinquency rate and foreclosure rate fell to their lowest in 6 years...now, you might recall from the December Mortgage Monitor that we reviewed two weeks ago that mortgage delinquencies were up slightly in December, after rising 2.6% in November; and that mortgage delinquencies had generally been up since September after bottoming out in May...the reason for the discrepancy is that the MBA seasonally adjusts their mortgage data and quotes percentage changes, whereas LPS reports the hard numerical count of active loans in each situation...and as we've noted repeatedly, mortgage delinquencies do tend to rise in the fall, likely as school expenses impact family budgets, and peak around the holidays, as it seems common practice for homeowners to forego a mortgage payment or two while Christmas shopping, only to catch up in the first few months of the new year...so what the MBA is telling us is that based on the historical percentage of mortgage delinquencies that have occurred in 4th quarters of past years, this year's increase was less, and hence their adjusted percentage of delinquencies is marked lower than previous quarters this year, which makes it the lowest delinquency rate since before the crisis..

what we'll do this week is compare the percentages that the MBA gives us in this report, which is in effect for the last day in December, to the percentages we've derived from the December LPS Mortgage Monitor, which is as of that same date...historically, the MBA's delinquency count has been a bit higher, but with the seasonal adjustment on the 4th quarter, we find that they're a bit lower... the MBA has the seasonally adjusted mortgage delinquency rate (not including those in foreclosure) at 6.39% of all 1 to 4 unit residential loans outstanding at the end of the fourth quarter of 2013, down from their delinquency rate of 6.41% in the 3rd quarter; and down from 7.09% for the 4th quarter of 2012... the unadjusted delinquency rate from LPS was 6.47% at the end of December, down from the year earlier delinquency rate of 7.17%…in contrast, the NY Fed, whose data is from credit reports, had the mortgage delinquency rate a 3.9%....the MBA also reports a 2.86% foreclosure rate, which is the percentage of loans in foreclosure, down from 3.08% in the 3rd quarter and 3.74% a year ago; that's in contrast to the 2.48% foreclosure rate reported by LPS for December, down from 3.44% in foreclosure in December of last year...MBA further reports a serious delinquency rate of 5.41%, which is the percentage of both those home loans that are over 90 days past due plus those in foreclosure; that 's down from their seriously delinquent rate of rate of 5.65% in the 3rd quarter and down from the 6.78% serious delinquency rate a year ago....LPS shows 1,244,000 in foreclosure at the end of December, with seriously delinquent loan count at 1,280,000, which together are just 5.03% of the 50,164,000 active loans outstanding....so it's evident that even with the seasonal adjustment, the MBA shows a considerably higher percentage of loans in serious trouble than are reported so troubled by LPS...in addition, the MBA reports that foreclosure actions were started on 0.54% of mortgage loans in the 4th quarter, down from 0.61% in the 3rd; LPS put new foreclosure starts at 104,759 in December and 328,535 over the last three 3 months; which would be a foreclosure start rate of .65% of 50,164,000 active loans they cover over the same period...

the bar graph below is from Bill McBride’s coverage of this report at Calculated Risk; like the first NY Fed graph above, each bar on the graph represents a quarter of a year going back to 2005, and within each bar is a color coded representation of the percentage of loans that were in foreclosure or delinquent, and by how many days delinquent, at the end of that given quarter….starting at the bottom of each bar, the percentage of 30 day delinquencies reported by the MBA each quarter is in violet, the number of 60 day delinquent mortgages each quarter is represented by the blue portion of each bar, the number of mortgages more than 90 days late is in yellow, with the percentage of mortgages in the foreclosure process shown in red...we can see on that graph that the percentage of mortgages in trouble peaked at 14.7% in the first quarter of 2010 and has been trending downward since, although it's still well above the levels of the pre-crisis year of 2005, especially with regards to 90 day delinquencies and homes stuck in foreclosure...

the next bar graph below is from the MBA and it shows the percentage of all mortgages in foreclosure by state, with the judicial states, where the bank must prove their right to foreclose, coded in navy blue, and non-judicial states coded in red…obviously, the states with the highest percentages of homes remaining in foreclosure according to the MBA are all judicial, led by Florida, which has 8.56% of their mortgages in foreclosure, which is nonetheless down from 9.48% in 3rd quarter; New Jersey, with the 2nd most at 7.90% in foreclosure down from 8.28% last report, as is New York, where the foreclosure inventory fell from 6.34% in the third quarter to 6.24% in the 4th, followed by Maine, with 5.00% of mortgages in foreclosure, down from 5.44% three months ago…Nevada is the only non-judicial state among the top dozen states with the highest foreclosure inventories, because they passed a law in 2011 making it a felony if a mortgage servicer made fraudulent representations concerning a title, and imposed fines up to $5,000 for falsifying documents, which slowed foreclosures in that state to a near standstill....

to compare the state foreclosure data in the chart above to the same metrics from LPS, we’ll include the table from LPS showing the percentage of mortgages either non-current or in foreclosure in each state (pdf source)…in the LPS table below, the first column shows the delinquency rate (Del%), for each state, which on this table is the percentage of mortgages in each state that are at least one month behind and not yet in foreclosure...the second column is the percentage in each state that are in foreclosure (FC%), while the total percentage of mortgages that aren't current with their payments (NonCurr%) is shown in the 3rd column, which is the sum or the first two....in contrast to the 8.56% in foreclosure in Florida shown by the MBA, LPS shows 7.4%; for New Jersey, MBA showed a foreclosure inventory of 7.9%, while LPS shows 7.2%; for new York, the MBA says 6.24% of mortgages were in foreclosure at year end; LPS shows 5.6% of New York mortgages in foreclosure at the end of December…similar differences in state foreclosure inventory percentages continue throughout the table, consistent with the higher totals of seriously delinquent mortgages reported by the MBA…and as we noted, both show considerably higher foreclosure rates than the NY Fed, which might call all their data into question…we, of course, have no idea which of these reports is the most correct…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

Sunday, February 16, 2014

results from both of the key reports for January released this week, on retail sales and industrial production, were likely adversely influenced by the colder than normal weather in the eastern US and the series of winter storms that both tracked farther south than usual and also curtailed activity in the heavily populated east coast corridor; quantifying the effects of weather, however is another matter...first, almost all reports are reported with seasonal adjustments, which come from programs that take the raw data on sales, production, employment, housing, inventories and a host of other economic metrics and compare the month being reported on to data from similar months over at least the last 5 years, and then generate a result that's supposed to show us how much the current month's economic activity deviated from the norm for that month vis-a-vis the previous month or quarter...some seasonal adjustments are needed for obvious reasons; ie, changes in farm or construction employment in the spring, school district employment in the fall, and the spike in retail sales around the holidays; incorporating them into the data allows the economic reports to be published without needing someone to manually go back each month and compare the change in employment, department store sales, or whatever from month to month in previous years to try to make sense of this years data...but these adjustments are only as good as are the averages they're derived from, and how close the current months under observation are to those averages...so although there's already a seasonal adjustment baked into January data that allows for some slowdown because of the cold and winter storms that always occur in January, that seasonal adjustment only takes into account the effect of what the average January has produced in terms of economic disruption over the past handful of years...so despite the fact that the seasonal adjustment for January utility usage, for instance, considers that it will normally be greater in January due to home heating, it does not adjust for the nearly month long string of below zero weather in the upper Midwest or the much colder than normal temps in the deep South...and while we'd expect a colder than normal month to depress even seasonally adjusted restaurant sales, the equal shortfall in seasonally adjusted online sales that occurred in January does indicate widespread weakness...

January Retail Sales Fall 0.4% After December Sales are Revised Down 0.3%

the Advance Retail Sales Report for January (pdf) from the Census Bureau estimated that our total seasonally adjusted retail and food services sales for the month were at $427.8 billion, which was a decrease of 0.4 percent (±0.5%)* from December's revised sales of $429.6 billion, which were originally reported at $431.9 billion...the November to December 2013 percentage change was revised from a gain in sales of 0.2 percent (±0.5%)* to a 0.1 percent (±0.3%)* sales decline, where the figures in parenthesis indicate the 90% confidence ranges for the percentage change in sales and the asterisk indicates that the Census Bureau does not yet have sufficient data to conclude whether sales actually rose or fell in either month...before the seasonal adjustment, the extrapolation from raw data showed January's total sales were estimated to be $392,332 million, down 19.3% from December's seasonally elevated sales of $485,885 million, but still up 3.0% from the sales of $392,332 million in January a year ago...as retail sales are approximately 23% of GDP, the decline in January sales has led forecasters to write down their forecasts for the 1st quarter GDP, and with the major revision to December sales we can also expect another negative revision to last year's 4th quarter numbers..

as was the case in most months in 2013, the January change in car sales was the major factor in the direction of final retail sales change for the month...seasonally adjusted sales at motor vehicle and parts dealers were at $80,089 million, down 2.1% from December's slightly revised sales of $81,805 million; before the seasonal adjustment, January's vehicle and parts sales were off 3.8% at $71,662 million...without the drop in automotive sales, all other retail sales were down by a seasonally adjusted $44 million to $347,740 million, or statistically unchanged...a few business sectors saw increased sales in January, as you can see in the first column in the above table; sales at building material and garden supply stores were up a seasonally adjusted 1.4% to $26,354 million; gasoline stations sales increased 1.1% to $45,777 million, likely on higher gasoline prices; sales at electronic and appliance stores were up 0.4% to $8,099 million, and sales for the food and beverage group were at $55,617 million, up 0.2% from December...on the other hand, sales at specialty shops, such as sporting goods, book and music stores, fell 1.4% to $7,556 million and sales at clothing stores were off 0.9% to $20,985 million....also, sales at furniture stores fell 0.6% to $8,315 million, while sales at restaurants and bars fell by the same percentage to $46,687 million and sales at non-store (primarily online) retailers also fell by 0.6% to $38,689 million...in addition, sales in the large general merchandise store category were down 0.1% in January to $54,974 million, dragged down by the 1.5% decline in sales at department stores to $14,197 million...

we've taken our standard FRED pie graph for retail sales, which we created to give us a sense of the relative size of sales of each of the retail groups covered by this report, and modified it so the text listings for the business types represented by the pie wedges are adjacent to the pie, rather than on top as in a normal FRED graph...our new pie graph below shows motor vehicles and parts sales at 19.2% of total retail sales as a deep blue wedge, the next largest group, general merchandise stores at 13.3% of retail as a red wedge, followed counterclockwise by food and beverage stores in green at 13.3%, restaurants and bars in mauve at 11.2% of sales, gas stations in orange at 11.0%, non-store or online retailers at 9.3% in sky blue, building materials and garden supply stores in light green at 6.3%, drug stores in mauve at 5.8%, clothing stores in pink at 5.0% of sales, electronics and appliance stores at 1.9% of the total in purple, furniture stores in yellow at 2.0%, and stores specializing in sporting goods, books or music in the pale blue wedge representing 1.8% of retail sales...note that this pie graph does not include the miscellaneous store retailers indicated in the table above who account for roughly 2.0% of sales, because FRED limited us to a maximum of 12 pie slices per graph...(click to view larger at FRED)

as we mentioned earlier, there were also major revisions to sales changes reported for the various business groups in December, as a result of the downward revision of total seasonally adjusted sales to $429.6 billion for the month, from the originally reported $431.9 billion...the 1.8% decrease in sales for the automotive group was little revised from the originally reported $81,690 million at $81,805 million; thus there were major downward revisions in sales for many other retail groups…December sales at electronic and appliance stores, originally reported to be down 2.5% from November, are now seen to have been down 4.4% from November...furniture store sales, first reported to be down 0.4%, have been revised to show 3.0% lower sales...restaurant and bar receipts for December, reported up 0.5% from November last month, are now showing a 0.7% decrease, while sales at clothing stores, reported as having increased by 1.8% in the Advance report for December, have been revised to a smaller 0.7% increase, and the 1.6% increase in sales at gasoline stations has been revised down to a 1.1% increase...in addition, sales at sporting goods, book and music stores, first reported as down 0.6%, are now seen down 0.9%, while sales by the food & beverage group, which was reported up 2.0%, was revised to a 1.7% increase, and sales by general merchandise stores, which were reported up 0.1% last month, have been revised to show a 0.4% sales decrease...there was also a downward revision of 0.2% to December sales at drug stores, a 0.1% downward revision to nonstore sales, while miscellaneous store sales were unchanged by the revision...the lone positive revision to December sales estimates was for building material and garden supply stores sales, which were originally reported as off 0.4%, and now show no change in seasonally adjusted December sales…

January Industrial Production Falls 0.3% After December Production is Revised Down 0.4%

the other important release of the week was on January Industrial Production and Capacity Utilization from the Fed, which surprised forecasters who were expecting a 0.3% to 0.6% increase in industrial production with a decrease of the same magnitude...the seasonally adjusted industrial composite index, which is benchmarked at 2007 equal to 100, fell from a revised 101.4 in December to 101.0 in January, reversing the increase in the index from last month...the industrial production index for December was revised down from the originally reported 101.8, and the index for November, which had read 101.5, was marked down to 101.0...all told, this leaves the increase in industrial production at 2.9% since last January...

of the three subindexes that make up the industrial production index,.the manufacturing index, the largest at almost 75% of the total, was down 0.8% in January, from 97.2 to 96.4, which the Fed said was due to the severe weather that curtailed production in some regions of the country...however, the increases in the manufacturing index for the previous three months were also revised downward; manufacturing output for December was revised from an increase of 0.4% to 0.3%, the increase for November was revised from 0.6% to 0.3%, and the increase for October was revised from 0.6% to 0.4%, as a result, manufacturing output in the 4th quarter is now estimated to have grown at a 4.6% annual rate rather than the 6.2% originally reported...in addition, the mining index, which includes oil and gas production and accounts for more than 15% of all industrial activity covered here, was also down in January, by 0.9% to 122.8, after being up 1.8% to 123.8 in December, while the utility index, at less that 10% of industrial production, was up 4.1 to 107.1, due to an increase in demand for gas and electric heating...even seasonally adjusted, utility output is quite volatile, as it changes on deviations from normal temperatures in the most populated areas of the country; up 3.1 in September on warmer than normal weather, it was up 2.9 more in November on a colder than normal month, and is now 9.3% above the mild January of a year ago...meanwhile, the manufacturing index has increased just 1.3% since then, while the mining index 6.7 points higher than a year ago on increased gas and oil production...

in addition to the breakdown of industrial production into its three industry groups, this G-17 release from Fed also reports on industrial production by market group...among final products and nonindustrial supplies, which accounted for 53.21% of industrial output in 2013, January production of consumer goods fell 0.5% after 5 months of solid gains; seasonally adjusted production of durable goods was down 2.6%, largely because of a 5.1% pullback in production of automotive products, while production of electronics rose 1.1% and production of home furnishings and appliances fell 0.6%..meanwhile, production of non-durable goods was up 0.2%, but that was all due to an increase in energy output, which rose 2.8%; output of non energy nondurable goods fell 0.8%, with food and tobacco production down 1.0%, chemical products output down 0.3%, paper products production down 0.6%, while clothing output rose 0.5%...on an annual basis, the production of durable goods has increased 4.7% since last January, on 5.1% greater automotive production and increases in output of all other durable goods categories, while the output of nondurable goods increased 2.1%, again mostly due to a 10.1% increase in energy output, with output of paper products 2.0% lower than last year, chemical products production off 1.3%, food production 0.1% lower, while only clothing saw a year over year production increase of 2.5%...on an index basis, where 2007 production is equal to 100, the consumer goods production index is at 95.8, with only automotive products production at 109.2 and energy production at 110.0 higher than the pre-recession level...

production of business equipment also fell in January, for the third consecutive month, although only by 0.1%, with production of transit equipment down by 1.3%, production of industrial equipment off 0.1%, while production of information processing equipment rose 1.3%…since last January, production of business equipment has risen 2.4%, with production of transit equipment up 2.8%, production of industrial equipment up 2.4%, and production of information 1.9% higher than last year...the business equipment production index was at 102.9, with all components above their prerecession level...meanwhile, production of defense and space equipment fell 1.0% in January to an index reading of 113.9; which was still 1.1% higher than a year earlier..in addition, production of construction supplies fell 1.0% in their worst month since May, while they grew at 1.7% clip over the last year, while output of business supplies slipped 0.1% and posted a year over year growth rate of 2.8%...both supply indexes remain well below their prerecession levels with the construction supply index at 82.3 and the business supply index at 93.2..

the other major market group, the production intermediate and raw materials that will be processed further in the industrial sector, accounted for 46.79% of the total industrial production index in 2013, and production for that group fell 0.3% in January...among non-energy materials, production of those to be used in the manufacture of durable goods fell 0.6%, with production of parts for consumer durables off 1.5%, parts for equipment down 0.2%, and production of parts for other durables down 0.6%...for the one year period, production of inputs into durable goods increased 2.4% on the strength of a 4.1% increase in the production of equipment parts...meanwhile, production of inputs into non-durable finished products fell by 0.8% rate in January, with the output of chemicals for use in non-durables down 0.4%, textiles production down 1.6%, and output of paper materials off 0.3% for the month... output of non-durable inputs are down 1.0% since last January, with production of textiles down 3.9%, the production of raw paper down 1.0%, and the production of chemicals used in non-durable goods unchanged over the preceding year..

with industrial production down, capacity utilization, which is the percentage of our plant and equipment that was in use during the month, likewise fell by 0.5%, from 78.9% in December to 78.5% in January and is now 0.6% below the 79.1% capacity utilization figure of January last year...just 76.0% of our manufacturing plant and equipment was in use during January, down from 76.7% in December and 77.6% a year earlier; however, capacity utilization for manufacturing in December had previously been reported at 77.2%, and like industrial production it was revised down, along with capacity utilization for every month since September...of those manufacturing industries with an NAICS classification, capacity utilization for durable goods manufacturers fell 0.8% in January to 76.0%; factory utilization by manufacturers of fabricated metal products was the highest at 86.6%, while manufacturers of non-metallic mineral products were only using 60.1% of their equipment; the largest decrease in capacity utilization was seen by manufacturers of motor vehicles and parts, whose operating rate fell from 78.4% in December to 74.3% in January, while manufacturers of machinery put 0.3% more of their equipment to use in January with a capacity utilization rate of 80.8%...the operating rate for NAICS classified non-durable manufacturing fell 0.7% in January, from 78.1% to 77.4%, as capacity utilization for textile mills fell from 72.7% to 71.6%, utilization of equipment by manufactures of food, beverage, and tobacco products fell from 81.0% to 80.0%, and the operating rate for printers fell from 71.8% to 70.9%, while capacity utilization for manufactures of of apparel and leather goods rose from 74.7% to 75.0%....in addition, the operating rate for industries not normally classified as manufacturing but included as such in this report (primarily publishing and logging) fell from 60.6% to 59.9%...meanwhile, the operating rate for mining equipment, which includes gas and oil rigs, fell from 90.3% in December to 89.2% in January, and as we'd expect with a jump in utility output, capacity utilization for utilities rose from 80.1% in December to 83.3% in January...over the preceding year, manufacturers added 1.6% to their plant and equipment, mining saw a 4.6% growth in capacity as more drilling rigs were put into operation, and utilities increased their plant base by 0.8%...

our FRED graph for this report below shows the industrial production index for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of the index year of 2007, at which time they were all benchmarked to equal 100.0; it’s pretty clear that only the mining index is significantly above it’s prerecession peak, largely due to the explosion of fracking gas and oil rigs over much of the country…also shown below is the track of capacity utilization for total industry since 2007 in pink; note that it’s a percentage, rather than an index number like the other metrics we’re tracking on the same graph...

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

like December, there were suggestions in the media that January’s poor payroll job performance was weather related; however, the sectors showing the strongest job creation last month were those where we’d expect bad weather to have the most negative impact…construction contractors added a seasonally adjusted 48,000 jobs, with 13,200 of those in residential construction, 12,900 in non-residential specialty trades, and 10,100 in heavy and civil engineering...another 7,000 jobs were added in mining & logging, with 2,900 of those in support activities...in addition, 9,900 more jobs were added in transportation and warehousing, boosted by 10,100 additional couriers and messengers...the leisure and hospitality sector added 24,000 jobs, with 14,800 of those working in restaurants and bars...manufacturing industries added 21,000 jobs, with 7,000 in machinery manufacturing and 5,900 in transportation equipment factories, while 13,900 more were employed in wholesale trade, with 9,800 of those handling non-durable goods...the large professional and business services sector employed 36,000 more than a normal January, with 11,900 of those in employment services and nearly 5,000 each in accounting and bookkeeping, architectural and engineering, and computer systems design.....offsetting those job gains, sectors that saw seasonally adjusted job losses in January included government, where there were 29,000 less employed, with 12,000 less federal government workers as the post office cut 8,500, and 8,700 less employed by local school districts...and private educational services saw 7,700 less jobs as well, as the education and health services sector lost 6,000 jobs...meanwhile there were 12,900 less working in retail trade due to a cut of 22,300 workers at sporting goods, hobby, book, and music stores, while general merchandise stores added a seasonally adjusted 7,000...the actual reported job count in retail fell by 660,100, from 15,828,900 to 15,168,800, so what that's telling us is that the seasonal adjustment algorithm has determined that December to January job loss in retail was 12,900 more than normal for this time of year....

we're going to shorten the period shown on our regular FRED monthly payroll job changes bar graph below so as to better view the job changes that occurred over the past year...this graph below now shows the seasonally adjusted monthly change in payroll employment in selected sectors since the beginning of 2013, with the scale on the left indicating the increase of payroll jobs in thousands when the colored bar for that sector extends upwards, and the decrease in jobs in thousands in that sector when its bar points downwards…in each monthly grouping of 8 bars, the monthly change in manufacturing employment for that month is indicated in blue, the change in monthly construction employment is in red, the monthly change in retail employment is in dark green, the monthly change in government jobs is in yellow, and the change in employment in professional and business services, which could be anything from a programmer to a janitor, is in grey; also included are the CES employment subcategories of jobs in bars and restaurants in light green, and new health care jobs in orange, with private education jobs shown in violet...(click to expand to two years)...January's jobs changes are represented by the bar cluster on the far right; with the large jump in construction jobs (red) fairly obvious as is the large drop in government employment (yellow)...also note the drop in retail jobs (dark green) follows a larger than normal increase in that sector in December, so January's seasonally adjusted drop may just reflect greater than normal seasonal employment in that sector...

in unadjusted data over the past year for the jobs shown in the graph above, employers have added 85,000 jobs in manufacturing, 180,000 jobs in construction, 316,700 in retail, 700,000 in professional and business services, 347,900 in food and drink service, 277,900 in health care, and 25,500 in private education, while 48,000 government jobs were eliminated...in sectors not shown on the graph above, 98,500 jobs were added in wholesale trade, 96,100 were added in transportation and warehousing, 37,000 jobs were added by mining, oil & gas & logging industries, 67,000 jobs were added in the financial sector and while jobs in information services and utilities were virtually unchanged...

the establishment survey also showed that the average workweek for all payroll employees was unchanged at 34.4 hours while the average workweek for production and nonsupervisory employees was also unchanged at 33.5 hours as December's as workweek was revised down by a tenth of an hour from the reported 33.7 hours....the manufacturing workweek fell 0.2 hours to to 40.7 hours, and factory overtime was cut by 0.1 hour to 3.4 hours, while the workweek in wholesale trade and for utility workers rose 0.1 hour....the average hourly pay for all workers was up 5 cents to $24.21, with seasonally adjusted average pay for retail workers up 12 cents to $16.77 an hour while utility workers saw their average hourly pay cut 6 cents to $35.40...excluding management, average pay for nonsupervisory workers was up 6 cents to $20.39, with pay for nonsupervisory leisure and hospitality workers, the lowest paid group to begin with, falling even further by 4 cents to $11.87 an hour...

According to the Household Survey, December’s Labor Force Dropouts Found Jobs in January

the number of us unemployed for more than 27 weeks fell by 232,000 to 3,646,000, but that official number only counts those who looked for work during the month...since unemployment rations were cut off at the end of December, it's likely many of the long term jobless lost the incentive to look for work during the coldest month in recent history...among those thus not officially in the labor force and hence not counted, some 6,508,000 reported that they still want a job, up from 5,932,000 in December; of those, 2,592,000 were categorized as "marginally attached to the labor force" because they've looked for work sometime during the last year, but not during the 30 day period covered by the January survey...837,000 of those were further characterized as "discouraged workers", because they say that they haven't looked for work because they believe there are no jobs available to them, which is up from the 804,000 workers considered discouraged last January...

CBO Says We’ll Quit our Jobs to Collect Obamacare Subsidies

there was one other widely misinterpreted report out this week that we ought to explain before we leave the topic of employment...on Tuesday, the Congressional Budget Office (CBO) published their annual ten year tome, ‘The Budget and Economic Outlook: 2014 to 2024’, a dense, 182 page pdf that attempts to forecast our economy over the next ten years, and which includes a section titled 'Labor Market Effects of the Affordable Care Act - Updated Estimates"...the CBO is billed as "non-partisan", but the director, Doug Elmendorf, has long had a bone to pick with welfare programs, and CBO had earlier forecast that giving poorer workers means-tested subsidies for health care would cause some workers to work less hours....in this update they were more specific, as summarized by the following "CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.", although the entire section was much more nuanced...almost immediately, this small appendix to the budget forecast was widely covered with headlines such as Obamacare will push 2 million workers out of labor market; Obamacare Will Cost 2 Million Full-Time Equivalent Jobs by 2017, Obamacare To Crush Workforce By 2.5 Million Workers In Next Decade, spinning the ACA as a job killer....but that's not what the section alleges; they're saying workers will voluntarily quit their extra jobs or work less hours to keep their ACA subsidies...even if this were true, just because a percentage of workers decide to work less hours does not mean that total jobs or hours worked in the aggregate will fall; if someone quits their extra job, whoever they had been working for will just hire someone else…the only way ACA could cause a reduction in jobs would be if there were a labor shortage and companies couldnt find anyone willing to work, which would ultimately result in higher wages until such time as their labor requirements were met...but the entire premise of this section is suspect; we dont have evidence that the poorest among us choose to remain poor and refuse to take a job so they could remain eligible for Medicaid; why should we believe that this would happen with the ACA?...that the equivalent of 2.3 million workers will walk off their jobs in order to remain poor enough to have their health insurance subsided strikes us as pure poppycock...

December Trade Deficit Jumps 12% on Lower Exports

the other important economic release of this past week was the report on our International Trade in Goods and Services for December from the Commerce Department, which showed our seasonally adjusted trade deficit jumped $4.1 billion to $38.7 billion, up nearly 12% from the four year low of $34.6 billion posted in November...exports decreased while imports increased; our seasonally adjusted exports of goods decreased $4.3 billion to $132.8 billion while our exports of services increased $0.8 billion to $58.5 billion, as our imports of goods increased $0.3 billion to $191.6 billion, while our imports of services increased $0.3 billion to $38.4 billion....our FRED bar graph below shows the monthly change in exports in blue and the monthly change in imports in red over the past two years, with the net of them resulting in the change in the balance of trade, which is shown in brown...each group of three bars represents one month’s of trade data, with positive changes above the ‘0’ line and negative changes below it; note that when exports (blue) increase in a given month, they add to the trade balance change in brown; and when exports decrease, they subtract from the brown trade balance bar...however, the action of imports on the balance is just the reverse; when imports increase in a given month, they subtract from the brown trade balance for the month, but when imports decrease, the balance of trade rises as a result…since December's trade balance was worse than expected (recall the BEA assumed imports would decrease in December) we would expect a downward revision to 4th quarter GDP as a result...Barclay's has already estimated a 0.4% hit to 4th quarter GDP, down to 2.8%, from the originally reported annual rate of 3.2%...

all of the end use categories of our exports saw decreases on a seasonally adjusted basis in December except for food, feed and beverages, exports of which were up $364 million on a $386 million increase in soybean exports...we exported $1,127 less in industrial supplies and materials as we exported $250 million less finished metal shapes, $250 million less chemicals not classified separately, and $196 million less plastic materials, while our exports of petroleum products other than fuel oil rose $337 million; we exported $1,067 less capital goods as our civilian aircraft exports fell $609 million, and we also exported $769 million less automotive vehicles, parts, and engines...in addition, our December exports of consumer products fell $708 million on $234 million less exports of gem diamonds and $149 million less exports of pharmaceuticals, and our exports of goods not otherwise classified fell $894 million as well...

meanwhile, the seasonal adjusted increase in imports of goods in December included a $653 million increase in imports of consumers goods, the lions share of which was a $491 million increase in imports of artwork and antiques; we also saw our imports of industrial supplies and materials increase by $527 million as a $217 million increase in imports of crude oil and a $285 million increase in imports of other petroleum products offset a decrease of $229 million in imports of nuclear fuel materials, while our imports of "other goods" increased by $316 million...meanwhile, our imports of automotive vehicles, parts, and engines decreased by $914 million to $26,253 million and our imports of capital goods decreased by $343 million to $47,445 million on $399 less computers, $177 million less industrial machines and $168 million less computer accessories while our imports of civilian aircraft increased by $573 million...in addition, our net imports of foods, feeds, and beverages decreased by $61 million as $80 million more imports of cocoa beans and $66 million greater imports of fish and shellfish were offset by broad declines in most other food imports, including a $74 million decrease in imports of food oils and oil seeds…

2013 Trade Deficit Shrinks Nearly 12% on Lower Oil Imports

for the entire year, our goods and services deficit fell by $63.1 billion from the 2012 deficit of $534.7 billion, as exports of $2,272.3 billion and imports of $2,743.9 billion resulted in a goods and services deficit of $471.5 billion for 2013; the trade deficit subtracted 2.8% from GDP in 2013, down from the 3.3% hit to GDP in 2012...exports that saw the largest annual increases in 2013 included civilian aircraft, which increased by $9,023 million to $54,398 million, automotive vehicles, parts, and engines, of which our exports increased by $5,969 million to $152,095 million; fuel oil, in which exports increased by $4,463 million to $64,350 million, other petroleum products, where our exports increased by $4,158 million to $60,949 million; gem diamonds, exports of which increased by $2,796 million to $20,909 million, industrial machines, exports of which increased by $2,635 million to $48,803 million, and wheat exports, which increased $2,351 million to $10,687 million...major exports which decreased in 2013 included non-monetary gold, which fell by $3,254 million to $33,345 million, soybeans, where our exports fell $3,060 million to $22,933 million, metallurgical grade coal, exports of which fell $2,954 million to $7,701 million, excavating machinery, exports of which fell $2,874 million to $14,714 million, and non-monetary gold, of which our exports fell $3,254 million to $33,345 million...

imports which saw large increases in 2013 included automotive vehicles, parts, and engines, which saw an $11,000 million import value increase to $308,813 million, cell phones and similar household goods, of which our imports increased $8,923 million to $90,207 million, civilian aircraft, imports of which increased by $3,464 million to $13,753 million, gem diamonds, imports of which rose $3,198 million to $23,394 million, electric apparatus, of which our imports rose $2,870 million to $45,718 million, and textiles and apparel not including those of wool or cotton, for which our imports increased by $2,505 million to $41.881 million... decreases of imports in 2013 were led by the $40,334 million decrease in imports of crude oil to $272,466 million but still our largest import item by far...we also imported $18,139 million in iron and steel mill products, $2,734 million less than in 2012, and $2,191 million less liquefied petroleum gases, imports of which fell to $4,160 million, while imports of televisions and video equipment fell $4,079 million to $28,764 million, imports of pharmaceuticals fell $2,901 million to $84,352 million, imports of oilfield and drilling equipment fell $2,692 million to $9,006 million. and imports of excavating machinery fell $2,326 million to $10,381 million...

we’ll again use the trade deficit graph from Bill McBride to illustrate the significance of our oil imports in the trade deficit equation; with the top line as zero and the rest of the graph negative, the black graph line tracks our deficit in petroleum trade only in billions of dollars since 1998; over the same time span, the red graph shows our trade deficit for everything else except oil; add those two together, we get our total trade deficit, which is graphed in blue...it’s clear that since the beginning of the recession until just recently, our deficit in oil products has been greater than our deficit in all other goods and services combined…despite the fact that oil prices averaged $91.34 in December, down from $94.69 in November, we imported somewhat more crude and other petroleum products than we exported, so our petroleum deficit increased in December, contributing to the overall increase…

Foreclosure Starts Fall to 5½ Year Low as Time in Foreclosure Lengthens to 920 Days

also released this week was the Mortgage Monitor for December (pdf) from Black Knight Financial Services (BKFS), which is the spinoff of the LPS Data & Analytics division...according to BKFS, 1,244,000 home loans, or 2.48% of all active loans, were in the foreclosure process in December, down from 1,256,000, or 2.50% of all homes with mortgages that were in foreclosure in November, and down from 3.44% in foreclosure in December of last year; new foreclosure starts at 104,759 were also down slightly from November's 104,939 and the least foreclosure starts in any month since April 2007...as is usually the case in December, there was a slight increase in those who were behind on their mortgage payments, as the mortgage delinquency rate, or the percentage of home loans 30 or more days past due but not in foreclosure, increased to 6.47% from 6.45% in November, but was still down from the year ago delinquency rate of 7.17%...of those delinquent in December, 1,964,000 home loans were 30 or more days but less than 90 days past due, and 1,280,000 mortgages were seriously delinquent, or more than 90 days past due, a slight decrease from the 1,283,000 seriously delinquent in November...most of the increase in delinquencies were in the 60 to 90 days late bracket, which at 551,473 was up from 534,167 in November and at an eleven month high...so it appears a number of the newly delinquent mortgages we saw in November extended their delinquency into December...

the first graph below, from page 5 of the Mortgage Monitor pdf, shows the percentage of active home loans that were delinquent monthly since 1995 in red and the percentage of mortgages that had been in the foreclosure process in green monthly over that same time period…it’s evident from this view that the percentage of homes in foreclosure in green has been falling fairly steadily over the last year and a half and at 2.48% is now down 42% from the October 2011 peak of 4.29% of mortgages in the foreclosure process…however, that’s still 4.6 times the pre-crisis foreclosure inventory of 0.44% from December 2005 that’s highlighted on the graph, so we’re still a long way from normal …similarly, with delinquent mortgages shown in red at 6.47% of all mortgage outstanding in December, we’re down significantly from the 10.57% of mortgages that were delinquent but not in foreclosure in January of 2010, but still more than 50% above the December 2005 delinquency percentage of 4.27% noted on the graph...

the next picture, from page 8 of the Mortgage Monitor, is a map with breakdown of the total percentage of non-current mortgages by state, including both all those that are behind on their mortgage payments as well as those that are in the foreclosure process…the darkest red indicates states where the total percentage of delinquent mortgages is above 12.4%, which includes Mississippi at 15.5%, New Jersey at 14.5%, and Florida at 14.3% of all their mortgages not current…lighter red indicates states where between 9.2% to 12.1% of mortgages are late on their payments…for the states shaded light green, the delinquency rates range from 6.0% for Nebraska to 8.7% for Washington, while the darkest green states all have total mortgage delinquency rates lower than 5.5%, with North Dakota with 2.9% of mortgages in arrears, being the lowest…low delinquencies don't necessarily indicate housing stability, however; as we’ve noted previously, some of those housing bust states with low current delinquency rates, such as Arizona and California, have just had rapid foreclosure processes, such that those homeowners who fell behind on their mortgages were quickly foreclosed on and already had their homes seized...

the next graph, below, from page 6 of the pdf, shows the number of foreclosure starts in blue and foreclosure sales in red monthly since the beginning of 2005; foreclosure starts are indicated for the month that the loan servicer refers a delinquent mortgage to its attorneys for foreclosure, and are usually initiated with an official notice of delinquency or foreclosure, depending on state regulations...a foreclosure sale is the legal auction wherein the bank buys the title after the foreclosure completes; after a foreclosure sale, the home moves into the bank's property inventory, also known as REO (Real Estate Owned - definitions are on page 28 of the pdf)...we can see that foreclosure starts peaked at 316,000 in March 2009 and remained elevated until recently, with starts in both November and December in the 105,000 range, while completed foreclosures peaked at 124,000 in September 2010 and dropped rapidly in the light of the foreclosure fraud scandals…what the two graphs together show is that for the duration of the mortgage crisis, foreclosure starts have been far in excess of foreclosures completed, which results in that large ongoing foreclosure inventory of homes and homeowners stuck in the foreclosure process, which as we noted earlier, is more than 4 times the normal level…

the bar graph below shows the “pipeline ratio” for selected states; as the subheading indicates, the pipeline ratio is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that by the average number of completed foreclosures per month over the previous 6 months; that results in the average number of months a problem loan would be in the "foreclosure pipeline" at the current pace before the foreclosure process on all seriously delinquent homes is completed…the graph is further divided into those states shown in red where the foreclosure process is judicial, where a court proceeding is necessary to complete a foreclosure, and non-judicial states, shown in blue, where such a proceeding isn't necessary for the banks to have the the home seized…thus, the pipeline ratio at an average of 51 months is higher in those states where the bank must prove their right to take the home than the non-judicial average pipeline ratio of 41 months…New York State continues to have the longest pipeline ratio at 272 months, which means that at the current pace of foreclosures in New York, it would take nearly 23 years for all seriously delinquent homes in the state to be foreclosed on....and New Jersey, with a seriously delinquent backlog that would take over 16 years to clear, is also far behind on processing foreclosures…as we can see in the printed call out of the largest changes over the past 6 months, the pipeline ratio is being reduced in most states, save California where it has risen to 61 months…in mid 2011, in the midst of the robosigning scandal, the pipeline ratio had risen to an average of 118 months, or nearly ten years, for all states with a judicial process...

for a comprehensive review of how the mortgage crisis has played out from the beginning, we’ll include below a table showing total active home mortgage loans, the number of them delinquent and in the foreclosure process, the number of foreclosure starts, and the average days delinquent for those in the “foreclosure pipeline”, going back to January 2008 with monthly data since January 2012, which comes from page 25 of the Mortgage Monitor…after the columns for the date and the active loan count for that month, the the next three columns show the total loan counts of delinquent mortgages by number of days delinquent, the number of mortgages in foreclosure (FC) and the foreclosure starts for each January since 2008 and each month since January 2012...in the last two columns, we see the average length of time those who’ve been more than 90 days delinquent have remained in that status, and then the average number of days those in foreclosure have been stuck in that process because of the long pipelines…we can see that for those 90 days delinquent, the length of time remaining in that status without foreclosure has fallen to 490 days, while the length of time for those who’ve been in foreclosure without a foreclosure sales has lengthened to a record 920 days…this suggests that the reduced level of new foreclosure starts are being initiated only against those who’ve been delinquent the longest…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

Sunday, February 2, 2014

the key economic release of this week was the Advance estimate of Gross Domestic Product for the 4th quarter, in which the BEA (Bureau of Economic Analysis) estimated that our seasonally adjusted real output of goods and services rose at a 3.2% annual rate for the last three months of 2013, and, when aggregated with the growth for the preceding 3 quarters, showed that our economic output grew 1.9% over the year just ended....in current dollars, the value of our output topped $17 trillion for the first time, at $17,102.5 billion, up from $16,912.9 billion at the end of the 3rd quarter and up 4.2% from $16,420.3 billion at the end of 2012...however, since the change in GDP being reported here is not a measure of the dollar value of our GDP but a measure of the change in our output, it's adjusted for inflation using chained 2009 dollars, from which all percentage calculations in this report are based....thus any dollar amounts we'll refer to are used for perspective only, as what is reported here, although denominated in dollars, is not a dollar measurement but is in fact a measurement of the relative change in each of the components of our real quarterly output, annualized....also recall that all quarter over quarter percentage changes are given at an annual rate, which means that when it's said that GDP grew at a 3.2% rate in the quarter, it means the actual quarter over quarter growth was a bit less than 0.8%...as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to further revision by other reporting agencies; more specifically, December trade and inventory data have yet to be reported, and BEA assumed exports and imports had fallen for the month, while wholesale and retail inventories had increased and nondurable manufacturing inventories increased...as a result, advance estimates such as this are often revised substantially as additional or revised input data becomes available; in the 3rd quarter, for instance, the advance estimate had the economy growing at a 2.8% rate; by the final revision, the 3rd quarter growth rate was at 4.1% annualized...

4th Quarter GDP Grows at 3.2% Rate on Consumer Spending and Exports

seasonally adjusted growth in real personal consumption expenditures, which accounted for less than half of GDP growth in the third quarter, accounted for 2.26% of the fully computed 3.23% growth rate in the 4th quarter, as they grew at a 3.3% annual rate....inflation adjusted personal outlays for goods grew at a 4.9% annual rate in the 4th quarter and 3.7% for the year; with 4th quarter spending for durable goods growing at a 5.9% annual rate and adding 0.44% to GDP, and real spending for non-durable goods growing at a 4.4% annual rate and adding 0.68% to the GDP growth figure...nearly half the real increase in durable goods outlays in the 4th quarter was for recreational goods and vehicles, as outlays for motor vehicles, which had grown solidly in the 3rd quarter, fell to less than 2% of the 4th quarter durables goods increase...nearly 30% of the growth in 4th quarter outlays for non-durable goods was for food, while over 1/4th of it was an increase in outlays for clothing and footware...meanwhile, real personal consumption expenditures for services grew at a 2.5% annual rate in the 4th quarter and added 1.14% to 4th quarter GDP; increased outlays for food services and accommodations accounted for 1/3rd of the 4th quarter growth in services, with greater outlays for health care, housing and utilities, and financial services each accounting for more than 10% of the 4th quarter increase in services...for the entire year, inflation adjusted personal consumption expenditures for services were just 1.2% higher than those of 2012...

seasonally adjusted gross private domestic investment, which had increased at a 17.2% annual rate in the 3rd quarter on a huge inventory buildup, only grew at a 3.4% rate in the 4th quarter, as almost every category of investment grew slower or contracted in the 4th quarter...real nonresidential fixed investment increased at a 3.8% rate, down from the 4.8% rate of increase in the third quarter, as private investment in non-residential structures fell at a 1.2% rate and subtracted .03% from 4th quarter GDP, after growing at a 13.4% rate and adding .35% to 3rd quarter GDP; investment in equipment, the only investment component to see greater growth in the 4th quarter, increased at a 6.9% annual rate and added 0.38% to 4th quarter growth, as investment in transport and other equipment more than offset slight contractions in industrial equipment and information processing equipment investment....in addition, investment in intellectual property increased at a 3.2% annual rate and added 0.12% to GDP; half of that growth was in software, while half was in R&D; investment in entertainment, literary, and artistic originals saw no increase from the 3rd to the 4th quarter...meanwhile, residential investment took a tumble, contracting at a 9.8% rate and knocking .32% off the GDP top line, after rising at a 10.3% rate and adding .31% to GDP in the 3rd quarter..residential investment in 2013 was still 12.1% above that of 2012 and added .33% to GDP for the year...the other component of gross private investment, the change in private inventories, was again positive, as inflation adjusted inventories grew by $11.5 billion and added .42% to GDP...however, that was not at as massive as the $59.1 billion real inventory increase in the 3rd quarter, which boosted that quarter's GDP by 1.67%....as a result, 4th quarter real final sales of domestic product, which is GDP less the contribution of private inventories (which are products not sold), increased by 2.8%, in contrast with the smaller increase of 2.5% in real final sales in the third....

net exports provided the boost to 4th quarter GDP that was lost in the lower investment figures, as they were less negative than in the 3rd, mostly on higher exports...you should recall that real exports add to GDP (as they are production that is not consumed or invested domestically) and imports subtract from it (as consumption of those are not domestic products), so as long as we continue to run a trade deficit, the net effect of our trade will be to subtract from GDP...however, what these quarterly reports are telling us is the change in product from quarter to quarter, so in any quarter where our trade deficit shrinks, the net effect is to add to the increase in GDP, while an increase in our trade deficit subtracts from GDP...in the 4th quarter, our real (inflation adjusted) exports of goods and services increased by 11.4% and added 1.48% to GDP by themselves...real imports, on the other hand, only increased by 0.9% and thus subtracted just 0.15% from the final growth tally....for the entire year, exports increased 2.8% and contributed .38% to 2013's anemic GDP, while imports increased by 1.4% off a larger base and subtracted .23% from GDP...

the shutdown of Federal government in October appears to be at least partially responsible for clipping nearly a full percent off the annualized increase for the quarter, although the BEA advises that the effects "cannot be quantified because they are embedded in the regular source data that underlie the estimates and cannot be separately identified"...federal government gross investment and consumption expenditures fell at an annual rate of 12.6% in the 4th quarter and subtracted .93% from the quarter’s growth rate...spending for defense was off at a 14.0% rate and accounted for .68% of that hit; non-defense outlays fell at a 10.3% clip and accounted for the remainder...we should note that federal government outlays for social insurance are not included in these totals; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services...the other government contribution to GDP comes from state and local government investment and consumption expenditures, which were up 0.5% in the 4th quarter; both state and local investment and state and local spending each added 0.03% to 4th quarter growth...

our FRED graph below shows the change, in billions of chained 2009 dollars, in each of the major components of GDP, over each quarter for the last eleven quarters, and gives us a visualization of the magnitude of the impact of each on the quarterly change.…those components that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line..in each quarterly grouping of seven bars on this graph, real personal consumption expenditures are shown in blue, gross private investment, including structures, equipment and intangibles, is shown in red, imports are shown in green, exports are shown in purple, and the change in private inventories is in yellow...lastly, the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey...clearly, it’s been consumer spending in blue and business investment in red that have been driving economic growth, with growth exports in purple contributing increasingly over the last three quarters, while increasing imports and cuts to federal spending have been the largest economic drags…

Savings Rate Near 5 Year Low as December Spending Increases 0.4% on Lower Real Income

the major monthly report released this week, also from the BEA, was on Personal Income and Outlays for December, which, in addition to giving us the month’s details about our personal consumption expenditures (PCE) that were just included in the 4th quarter GDP (and which accounted for 23% of GDP), also gives us December details on our personal income and disposable personal income (after taxes), personal savings and the national savings rate, as well as the price index for PCE, which is the inflation gauge the Fed targets and which is used in this report to adjust both personal income and consumption expenditures for inflation...like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; however, the month over month percentage changes are not annualized and are typically used in the same sentence with and referring to the annualized dollar amounts, often leading to significant misreporting of the results here, despite the recently added footnote to this report clarifying that standard...

so, when the BEA opens by telling us that "personal income increased $2.3 billion, or less than 0.1 percent", they mean that seasonally adjusted and annualized personal income, which was at a $14,304.8 billion annual rate in November, rose to an annual rate of $14,307.1 billion in December, which is not only less than a 0.1% increase, but also statistically insignificant....even the change in personal income from September's annual rate of $14,291.9 billion is barely an increase of 0.1%....meanwhile, disposable personal income (DPI), which is income after taxes, decreased at an annual rate of $3.8 billion in December, also well less than 0.1%...for the three month period, disposable personal income fell $18.1 billion, or about 0.15%...adjusted for inflation in chained 2009 dollars, real DPI was down 0.2% for December and is down $41.2 billion for the quarter to an annualized $11,711.8 billion, or roughly 0.35%...

most of the change in personal income was not in wages and salaries...among sources of personal income in December, all quoted at seasonally adjusted annual rates, private wages and salaries increased just $0.7 billion, in contrast with an increase of $35.0 billion in November; that was largely because service industries' payrolls decreased $3.6 billion, compared to the November increase of $24.4 billion...government payrolls were also weak, increasing only $0.9 billion for the month....the increase in supplements to wages and salaries, which includes employer contributions to pensions and social insurance, was greater than that to payrolls at $1.7 billion...income to business proprietors increased by $6.0 billion in December, while income to farm owners fell by $14.3 billion, the same income decrease farmers saw in November income...in addition, rent income of individuals increased $2.1 billion and income on assets, such as personal interest income and personal dividend income, increased $3.1 billion...and income received from government programs, such as social security, medicare and unemployment comp, increased $2.9 billion, while the increase of $0.7 billion in employees contributions to government social insurance was subtracted from that in the personal income calculation...

even with disposable personal income declining, seasonally adjusted personal consumption expenditures (PCE) increased 0.4% in December and were up at an annual rate of $44.1 billion to an annualized $11,707.4 billion; from September, PCE has increased by more than 1.1%, as we saw in the GDP report...in keeping with the weakness in auto sales that we saw in the retail sales report, spending for durable goods fell at a $23.8 billion annual rate to $1,276.3 billion, while spending on non-durable goods increased by $39.1 billion to an annualized $2,686.2 billion...our spending for services was also up in December, at a $28.3 billion rate to $7,744.9 billion.....total personal outlays during December, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $42.0 billion to $12,121.2 billion, which left personal savings, which is disposable personal income less total outlays, at $495.2 billion for the month, which was the lowest monthly savings since January... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.9% in December, down from 4.3% in November and from 5.1% in September and also the lowest since January, when disposable personal incomes collapsed 4.0%, after the expiration of the payroll tax cut and year end tax shenanigans that pulled normal bonuses and dividends back in to December 2012...except for that aberration, December's savings rate was the lowest since August 2008...

the price index for personal consumption expenditures, based on 2009 = 100, was at 107.726 in December, which was a 0.2% increase from November's 107.505 reading, which itself was virtually unchanged from September's 107.502...on a year over year basis, this price index, which the Fed has targeted to rise 2.5%, has now risen to 1.07%, up from last month's 0.87%...the price index for durable goods expenditures fell 0.4% in December, has fallen every month this year and is now at 93.535 based on 2009=100; the price index for non-durable goods, on the other hand, rose 0.5% in December after falling 0.3% in November and 0.4% in October...meanwhile, the price index for services was up 0.2% in December, as was up 0.5% over three months...our FRED graph below shows the track of these three components of the PCE price index since 2000, with all three set to 100 in 2009; note that prices for durable goods shown in blue have been falling over the entire period, while the price index for non-durable goods show in red and the price index for services in green have been moving up slowly at the same pace except for the brief slowing of non-durables during the recession marked by the grey bar…the price index for food, which is a non-durable good, was up 0.1% in December, mirroring the CPI index for food, while the index for energy goods and services rose 2.2% largely on higher gasoline prices....the Core PCE price index, which excludes food and energy from the index computation, was at 106.470 in December, up 0.1% from November and up just 1.16% from a year earlier..

it is this price index for personal consumption expenditures that is used to adjust the other metrics in this report for inflation; as noted earlier, adjusting disposable personal income with the 0.2% PCE price index increase left us with real disposable personal income down 0.2% for December; similarly. real PCE, which is personal consumption expenditures adjusted for inflation using the PCE price index, was up just 0.2% in real terms...our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale as a percentage of DPI on the right...the recent spike in income and savings was a result of the aforementioned fiscal cliff income manipulations; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 18.5% over the span of this graph…and we already know from seeing how little of that is in wages and salaries that the lion’s share of that increase has gone to the rentier class…

South in Deep Freeze as Alaska Sees Record Heat

lastly, for our friends in the Southeast who’ve been paralyzed by the snow and ice storm that moved out of Texas into the Carolinas during midweek, we’re going to include a picture of an earth projection from January 29th that shows the temperature anomalies as they occurred on our half of the globe on that date (source)…the bar on the right indicates the color coding for the temperature difference from normal, in both Centigrade and Fahrenheit, as shown on the map; generally, the lighter blues indicate areas where the temperature was 10F below normal, while 20F below normal is shown in darker blue-violet, and the brighter violet areas were 30 degrees below normal on that date; similarly, the orange colors are areas that saw temperatures 10F above normal, the brown areas were 20F above normal, and the red areas on the map are areas where the temp was 30F above normal…so it appears that while a large portion of the eastern continental US was seeing temperatures 25F below normal, Alaska, much of the Arctic, and the west coast of Greenland all basked in temperatures 30F to 35F above normal for that date, while much of Siberia was 35F below normal…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....